Comments on: Will much advertised Head & Shoulders pattern send market lower?

By: Doug Tucker

Doug Tucker — Wed, 29 Jul 2009 23:49:33 +0000

Larry, I do seem to favor indexes, but also use this on stocks. I even used it on daytrading tick charts of index futures. So have been using the double stochastic in all markets and time frames that I follow. I made no attempt to tweek it for each market. I just use the same setup. But it is only a guide. Price action is the main thing to watch in my opinion. I also use a couple of other oscillators that I rarely put on the blog. But I don’t get trading signals from any of them. They just help me read the price action. There are many articles you can find by Walter Bressert on this indicator. I have a link in my resources tab. Also, those INO videos that I have a link to on the left side of the blog have many Bressert lectures recorded that you can listen to, along with PDF files of the handouts. They were done about 10 years ago at trading conferences, but information just as valid today. I think there are at least a half dozen by Bressert, and many excellent presentations by Linda Rashcke. She doesn’t use the double stochastic, but has some excellent lecyures on trading using price action and very simple indicators.

By: Larry Jag

Larry Jag — Wed, 29 Jul 2009 11:03:52 +0000

I got it Doug! Thanks!

After I posted my comment yesterday, I started to play around with lower value ema’s, and when I hit 3, it looked a lot like yours [close enough for gov. work]. I am using basically the same formula as your stochastic so I am happy that I could at least reproduce some of your work. Now I have to find what works best for me (as you have stated many times on the site). I’m going to try different ema’s and sma’s for my trading style, and for stocks…btw, it seems like you like to trade indicex futures…I’m not sure if you trade stocks, but did you find in your research that these “cycles” occur in most types of markets – commodities, stocks, bonds, etc….that is my next research project…looking at these other markets.

Thank you very much for a great starting point with your articles on your site! I’m gonna cut bait and teach myself to fish some more

By: Doug Tucker

Doug Tucker — Wed, 29 Jul 2009 00:23:57 +0000

Larry,
I think the difference is the smoothing. I use 3 period emas on both, so a 9 period would give a different look. Also, if you are using your platform’s basic stochastic as a starting point they might be using a different smoothing. It probably doesn’t really matter as long as you are comfortable with what you have. I didn’t backtest or optimize anything, so different periods or smoothing might work fine.
So here is how I set it up: I programmed this from the standared formula for the stochastic, which would be a fast stochastic, and applied a 10 period lookback and then smoothed the result with a 3 period exponential moving average, which basically results in a Slow K line. Some software packages use a 3 period simple, some use a 5 period exponential, so result will vary. I then plug the output of that into the same fast stochastic formula, again using a 10 period lookback, and also smooth with a 3 period exponential moving average. I then multiply that by 100 to make the numbers eaiser to read. The white line is the same thing, but I use 5 as the lookback in both the first stochastic, and then again in the stochastic of the stochastic.
Let me know if this makes sense and you get similar results.

By: Larry Jag

Larry Jag — Tue, 28 Jul 2009 21:40:29 +0000

Thanks for the response. I have been trying to use the CCI smoothed with a simple moving average (6 period CCI, 5 period SMA) to find cycle tops/bottoms, but have not been that successful. Bottoms are generally more accurate that tops, as the CCI can stay overbought for a long time, unlike the market, which tends to reverse extremely oversold conditions quicker than overbought.

A question about your double stochastic indicator. I started to fool around with it. I can’t seem to reproduce your daily chart of the SPY. Are you essentially taking the result of the stochastic indicator (found in almost all chart packages) and then feeding in that value into the same stochastic indicator with the same parameters (except, the values for high/low/close are just the output values from the first stochastic function).

I’ve been trying to do this and have noticed that using an EMA or SMA [as part of the original stochastic function] shows very different results.

Just wondering if you saw the same and have any comments on what you found more accurate…ema or sma…I am using a length of 9.

Thanks.

By: Doug Tucker

Doug Tucker — Tue, 28 Jul 2009 00:50:17 +0000

Larry, The white line is just the 5 period double stochastic. The black line is the 10 period. I tried using an adaptive period, but prefer to just use the 10 and 5 period as I am used to how they interact. I do prefer the double stochastic to the CCI. I still refer to the CCI in some cases, such as how long the CCI stays beyond the 100 lines as a clue to when trend may end, but other than that I use it very little. I haven’t tweaked anything for the current market. I’ve had the same parameters for years.

By: larry

larry — Mon, 27 Jul 2009 23:15:47 +0000

Hello. I’ve read most of your indicator articles (from 2007) and read in your post that you are using the double stochastics on the present chart, but what is the “white” line on the subchart? Ehler’s adaptive cci?

Your older articles this year (mar-jul) also show a lot of double stochastic charts [and that white line]. Do you favor the dbl stochastics now over the adaptive cci formula? Just wondering if the huge bear market made you tweak your indicators and how you use them.

Thanks